BWY Co is a listed company, based in Erewhon, which builds private houses and apartments.

These range
from one bedroom apartments to five bedroom houses.
The housing market in Erewhon has experienced substantial volatility in the past 20 years, both in terms of
the number of houses being sold, and the prices at which comparable houses are sold.
In the early 1990s there was a price slump with house, during which prices declined significantly. However,
by the late 1990s price had stabilised, and then between 2000 2006 there was a sustained and
substantial increase in prices. During this time, the average price of houses in Erewhon more than doubled,
although there were significant regional variations across the country.
However, in 2007 the market began to slow down again, and the number of sales transactions began to
fall. The average price of houses peaked in early 2007, and then began to fall as well.
The credit crunch and global economic slowdown have meant that the volume of transactions and house
prices have remained depressed since 2008.
The supply of private properties in Erewhon, like most other countries, can be split into two sectors. The
first is the new build sector consisting of new houses and apartments which are sold to customers by
building companies such as BWY. The second sector comprises private individuals selling existing
properties to other individuals, often using an intermediary (an estate agent or realtor) to advertise and
administer the sale process. In addition to the private property markets in Erewhon, there is also a supply
of social housing, owned by local authorities and housing associations and rented out to tenants at
subsidised rates.
In the private property market, most buyers borrow a large proportion of the money they need to purchase
their houses, in the form of a mortgage. A consequence of the recent credit crunch has been a reduction in
mortgage availability as lenders have withdrawn some of their mortgage products. However, mortgage
interest rates still remain relatively low, reflecting the low base rate of interest in Erewhon at present.
The number of new build properties for sale in Erewhon has maintained a long term annual average of
about 160,000, although in the boom period between 2000-2006 this figure exceeded 200,000 per year.
The total number of property transactions (including new builds and re-sale) can vary quite significantly
each year, but in recent years it has been around 1 million.
BWY has attempted to establish a reputation for building good quality houses with quality fittings that are
not provided by many competitors. BWY has also held itself out as being an environmentally friendly
company by using recyclable materials and refusing to build on land where there is significant
environmental cost. BWY charges a price premium of about 5% over most other builders for similar size
houses.
Over the last decade, BWY has acquired a large number of plots of land (a 'landbank') which it holds prior
to developing. However, before BWY can building on this land it requires planning approval from the
relevant local authorities. Historically, BWY has made some major gains on the land it has held. These
gains have ultimately been reflected in high profits on the sale of houses as BWYs costs have risen
considerably more slowly than its selling prices.
BWYs results, and those for PMN, the market leader in Erewhon, for the year ended 31 December 2010
show the following:

The housing industry in Erewhon faces a lot of uncertainty in the next few years. Some analysts have
predicted house price decreases of around 25%, while other analysts have predicted a small increase in
prices. There is also uncertainty about the expected volume of house sales, although most analysts expect
this to remain relatively low.
The board of BWY is seeking to develop a new strategy to address the issue of future uncertainty in the
housing market in Erewhon. One suggestion put forward at a recent board meeting is to expand into the
countries around Erewhon by building houses in them. To date, BWY has only built houses in Erewhon.
New housing development
A local authority in one of the neighbouring countries to Erewhon has recently announced proposals for a
major new housing development. BWY has been invited to tender for the contract to build the
development, and it is currently considering whether or not to tender.
The local authority has indicated that it is initially looking to build 500 new houses, but there is a possibility
that the total homes may increase to 750 or 1,000 in future depending on demand. The local authority has
indicated that it demand increases to 750 or 1,000 the contract to build the extra houses would be offered
in the first instance to the developer building the initial 500.
In the invitation to tender document, the local authority has stated it will pay a fixed sum of $20m for the
initial 500 houses, rising to $30m for 750 houses or $40m for 1,000 houses. The local authority already
owns the land being used for the development.
BWY is currently considering its bid for the tender.
Its architects and draftsmen have prepared two proposals: a very basic design, and a higher specification
design.
The higher specification designs have higher costs, but it is believed the higher specification designs will
increase BWYs chances of winning the contract. BWY can only include one of the specifications in its final
submission to
the local authority.
BWYs costing team has estimated that the cost of building the basic design house is $25,000, rising to
$30,000 for the higher specification design.

The business development manager has recently joined BWY from a rival house builder with extensive
experience of local authority projects. He believes BWY has a greater chance of winning the tender if it
submits the higher specification design, and has assessed the probability of winning future orders as
follows:

Required
(a) Using the PEST model, discuss the impact of external factors on BWY, and explain the potential effects
of each factor on the companys future profitability.
Note. Do not discuss any strategies for expansion in this part of the question.
(10 marks)
(b) Evaluate the position and performance of BWY compared to PMN.
Note: Your evaluation should apply, and critically appraise, the Boston Consulting Group (BCG) Matrix, but
should not be restricted only to this model.
(10 marks)
(c) Assess the role that risk and uncertainty could play in deciding whether or not BWY should expand into
the
countries around Erewhon. (8 marks)